Stokes finds himself in the crosshairs

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Kerry Stokes leaves The NSW Supreme Court after the first day of the C7 court case.Photo: Andrew Quilty

How well did witness Stokes repel the attacks on his character?
Elisabeth Sexton reports.

Justice Ronald Sackville has taken with enthusiasm to the new
electronics system in room 21A of the Federal Court. The latest
technology has been installed for him to hear the Seven Network's
$1.1 billion damages case against three of Australia's biggest
media companies, its two leading telecoms and two of its most
popular sporting codes.

The judge regularly scans a pair of computer screens on the
bench and interrupts proceedings if the instantaneous transcript
disappears or he can't find whichever of the 75,000 documents on
the database is under debate.

But on many occasions in the past month he reverted to the more
traditional tools of his trade and simply gazed at the man in the
witness box, Seven's executive chairman, Kerry Stokes.

His face was always impassive, but it's not hard to guess why he
was observing the first witness so closely.

By the time Stokes finished giving evidence last week, it was
clear that Justice Sackville will be hearing many submissions from
the bar table that his evidence should not be believed.

A regular feature of the 14 days of cross-examination was the
phrase: "Mr Stokes, I have to put this to you " followed by
an accusation that he was lying.

Once such an allegation has been put to the witness, the rules
allow a barrister to submit to the judge later that the evidence
was false.

Again and again Stokes denied it. Variously accused of
fabrication, concoction, nonsense, rubbish and making things up as
he went along, he remained polite and composed throughout.

At one point his refusal to concede provoked News Ltd's
barrister, Noel Hutley, SC, to suggest his testimony was "beyond
silly".

Seven is suing 22 parties (which fall into nine corporate
groups), claiming that a collusion drove Seven's pay TV arm, C7,
out of business in 2002. The architect of the plan is said to have
been News Ltd; the motive, to create a monopoly in pay TV
programming for its half-owned Fox Sports and a monopoly in pay TV
retailing for Foxtel, in which it holds a 25 per cent stake.

The other chief targets are Publishing & Broadcasting Ltd
(which owns half of Fox Sports and 25 per cent of Foxtel) and
Telstra (half of Foxtel).

The case is already notorious for the size of the legal fees it
is generating, and when Stokes arrived on September 26, he found
eight silks and 14 junior barristers lined up against him. All were
keen to trip him up.

In one example, Hutley referred Stokes to a letter he had
written to the AFL on November 13, 2000.

It included a paragraph warning the AFL against losing
competitive tension in its tender for television rights. It
referred to the likelihood that the NRL tender under way at the
same time would settle at a low price, "the result of having no
competition for the rights".

Stokes had just given evidence that at the time, C7 was planning
to bid for the NRL pay TV rights. The formal offer was made on
November 17. How then could he tell the AFL there would be "no
competition"?

Stokes explained that on the date of the letter, the NRL
deadline had passed and C7 was waiting to learn if the NRL would
allow it to lodge a late bid. The Seven board was also yet to
approve it.

"That was the fact at that particular day," Stokes told
Hutley.

On one hand, Hutley wanted Stokes to admit the paragraph was
true. This would help News's case that Seven's unsuccessful bid for
the NRL was never genuine and thus it could deserve no damages for
losing out to Fox Sports.

On the other, if Stokes stuck to his evidence that Seven was
serious about bidding - which he did - Hutley had the makings of
what the lawyers call "a submission on credit".

"If you had an intention to bid for the NRL on the morning of 13
November 2000, that paragraph was a deliberate falsehood on your
part; correct?"

Stokes said no, but Hutley had his ammunition.

In the compulsory pre-trial exchange of documents, Seven
delivered more than 24,000 items from its files to its
opponents.

Hutley plucked paper after paper from this hoard in an attempt
to highlight discrepancies between the documentary record and
Seven's case.

Many of Stokes's explanations implied that a company headed by a
dominant shareholder (Stokes owns 43 per cent of Seven) made
decisions quickly and therefore did not generate the same type of
paperwork as other public companies.

Before Stokes was called into court on his fourth day, Justice
Sackville said: "It is perfectly evident from the cross-examination
that it is likely that there will be issues as to the
correspondence, or lack of it, between minutes and what was
discussed at particular meetings or before meetings. So for better
or for worse, those factual issues are in play."

The fertile minds of the many lawyers on hand made sure that
character issues were also introduced.

For example, several parties are developing defences that rather
than wanting to harm C7, experience had simply taught them to steer
clear of doing business with Stokes.

PBL is running this line as an answer to Seven's claim that
Foxtel unreasonably refused to buy C7's sports channels when it
held exclusive rights to the AFL.

PBL's barrister, Tony Meagher, SC, said in his opening statement
that its former chief executive, Nick Falloon, would give evidence
of an unhappy experience in the mid 1990s when Seven put its
free-to-air interests ahead of a pay TV joint venture with PBL. The
Supreme Court ruled in 1998 that Seven had breached the contract in
question.

Meagher said Falloon believed Foxtel should acquire the AFL
rights itself "rather than leaving the pay TV operator to the mercy
of any free-to-air operator and, particularly, Seven controlled by
Mr Stokes".

Optus apparently feels much the same. Seven is claiming that
even after C7 lost the AFL tender to Foxtel and the NRL coverage to
Fox Sports in 2000, it could have survived, albeit in much less
robust form.

The final blow was a decision by Optus, which had carried C7's
programs since its inception in 1998, not to sign a new three-year
contract in 2002.

Optus's barrister, Tony Bannon, SC, put to Stokes that he had a
reputation for using litigation and media pressure to intimidate
business partners.

Bannon highlighted a feisty but unsuccessful campaign by Stokes
for the Federal Government to block Singapore Telecom's 2001
takeover of Optus on national interest grounds.

He suggested that Stokes had been motivated by two deals on the
table between Optus and Seven and that he had used the lobbying
campaign to secure a commercial outcome.

Bannon could make good use of whichever answer Stokes gave.

An acknowledgment of intimidation would allow him to argue that
Stokes could never have expected a deal with SingTel.

When Stokes denied this suggestion, Bannon accused him of
fabricating evidence "because, I suggest to you, you realise that
making a threat to secure a commercial deal would cast you in a
light which would put you at the very bottom of commercial
morality, don't you?".

Stokes said no.

If Justice Sackville accepts the negative submissions, the
reputation of the 65-year-old self-made billionaire will receive a
battering. Apart from his 43 per cent shareholding and chairmanship
of one of Australia's three commercial TV networks, Stokes has
wide-ranging private business interests and is prominent in arts
and sporting circles.

He has put a lot on the line by pursuing the case against
well-resourced, powerful opponents and appearing as the first
witness.

In the event, has he hindered Seven's case?

His role was to support Seven's allegations in his
evidence-in-chief, which took the form of four written witness
statements. These included recollections of conversations with his
opponents implying collusive intent to harm C7, accounts of
explicit commitments from the NRL that its rights tender would
follow "fair process", and his views about how valuable C7 was
during its short life and how rosy its prospects were.

The witness statements were released just after Stokes swore his
oath with Bible in hand on September 26.

Then it was a matter of trying to hold the line under hostile
cross-examination.

On October 12, Stokes's ninth day, Justice Sackville suggested a
week's break after the second witness, Seven director Peter
Gammell. He wanted "everybody to give some thought as to whether
any issues in this case, in the light of how things have developed,
and this is true of all cases, might be narrowed in some way".

It is easy to see this was not a good development for Seven.

Harder to determine is just how bad it was.

Was the judge suggesting that Stokes's evidence had demonstrated
that the heart of Seven's case was flawed and that it should throw
in the towel?

Or was he less dramatically implying that Seven had gone
overboard by including too many peripheral matters in its case? The
statement of claim is 214 pages long. It presents alternative
allegations on the core issues of anti-competitive conduct, and
includes stand-alone actions such as misleading and deceptive
conduct and misuse of confidential information.

In a five-day opening address which began on September 12,
Seven's barrister, Jonathan Sumption, QC, summed up Seven's case
this way: "News set out from 1998 onward to take control of the
supply of sports broadcasting programming in Australia because they
saw it as a route to obtaining monopoly control over subscription
broadcasting itself News regarded the elimination of C7 as
an essential part of that process."

Sumption alleged a three-pronged assault. First, C7 was
frustrated in its attempts to sell is sports programs to Foxtel or
to set up its own retail service on the Foxtel cable. Second, it
lost the pay TV rights to the AFL. Third, it failed to pick up the
pay TV rights to the NRL.

Many of the issues involved will be decided by reference to
documents. For example, Sumption argued that C7's losing bid for
the NRL was higher than the winning offer from Fox Sports. In the
case of the AFL, he said it would have been cheaper for Foxtel to
buy the rights from C7 than to bid itself.

News, PBL and Telstra say his arithmetic in both instances is
flawed.

What Stokes thought about these matters during the tenders in
2000 or thinks now is of limited relevance. The offers were in
writing, the resulting contracts are formal legal documents and the
court database includes many analyses prepared by the bidders and
rights-holders at the time. This means His Honour can draw his
conclusions from the documents.

Nevertheless important aspects will turn on oral evidence.

Not least is the way Seven wants damages to be calculated. This
is a hypothetical issue because C7 had been running for only two
years when it lost its best asset, the AFL rights, and it shut down
altogether after only four years. Seven's bid for compensation of
$1.1 billion is partly based on expert evidence. But it also relies
on the decision-makers within Seven explaining how they would have
developed the business if it had survived.

A stumbling block is that in March 1999, former Seven chief
executive Julian Mounter signed a contract to sell C7's sports
programs to regional pay TV retailer Austar for $2 per subscriber
per month.

He held fruitless negotiations with Foxtel over slightly higher
prices.

Later C7 offered the content to Foxtel for much higher prices,
which Seven, unsurprisingly, wants to use as the benchmark for
assessing damages.

Stokes said he did not know about the Austar contract until
after it had been signed, nor were Mounter's talks with Foxtel
authorised. He recounted giving Mounter a dressing down and said
the issue was part of the reason for Mounter's departure after
seven months in the top job in July 1999.

Pressed by Hutley on why this dissatisfaction was not recorded
in any documents produced by Seven for the case, Stokes said he
recollected writing a memorandum about it with Seven director
Gammell.

This prompted a delay in the case to allow a new search of the
files in the Perth office of Gammell, who is also managing director
of Stokes's private company Australian Capital Equity.

On Thursday, his second day in the witness box, Gammell agreed
that there was not "one word in any document relating to Mr
Mounter's departure which refers to his conduct in relation to the
negotiations for the sale of C7 to Foxtel".

One of the most pointed attacks Sumption made in his opening
address was his claim News's in-house lawyer Ian Philip had leaked
details of C7's NRL bid to Telstra. News owns half of the NRL, a
legacy of the Super League wars, and Philip is its representative
on the NRL partnership. Telstra contributed to the winning bid by
Fox Sports by buying the internet and naming rights.

In his opening, Sumption said C7's first two offers on November
16 and 27 were "the subject of extensive but not entirely accurate
leaks to the press".

He focussed on a third offer lodged on December 5.

"The third offer was not leaked to the press," Sumption said.
"Mr Philip, however, knew in precisely what respect it differed
from all previous offers."

Under Hutley's cross-examination, Stokes agreed he had asked
public relations consultant Tim Allerton on November 30 to brief
journalists about Seven's NRL bid.

"The coverage looks great this morning and we do not have
any fingerprints on it," Allerton reported to Stokes in a December
1 email.

Hutley promptly put to Stokes that "from December 1, 2000, it
was a joke to suggest that your proposal to buy the NRL rights was
in any way confidential".

On the AFL front, Sumption opened Seven's case by saying the
winning bid was so high that it was known to be loss-making. The
only economically rational explanation was that it was pitched at a
level to harm C7.

News made the winning offer for both pay and free-to-air rights.
It then on-sold the pay rights to Foxtel, some of the free-to-air
to PBL's Nine Network and the rest to the Ten Network.

Under cross-examination, Stokes used the words "satisfactory"
and "good" to describe a death knell price C7 was prepared to pay
the AFL to match Foxtel's winning offer.

Hutley put to him that this showed: "Seven had simply failed to
put before the AFL Commission the best proposition that Seven could
reasonably afford for that package of rights."

Justice Sackville had pressed Sumption on this issue during the
opening address.

"What is a predatory offer from one party is not necessarily the
same as what would be a predatory offer from the other," was part
of Sumption's explanation.

Sumption traversed in detail internal Foxtel analyses which
showed its executives estimated their bid would lose money over the
five years of the contract.

These were "a guide to the purpose of the News consortium", he
said. "The question is whether they thought they would make a
profit rather than whether they actually would or whether C7 would
in comparable circumstances."

This argument indicates that, the way Seven sees it, there are
limits to the significance of Stokes's testimony. He is the driving
force behind the decision to sue. He would hardly have opened
himself to character assassination in the witness box unless his
evidence-in-chief was important.

But Seven's case as Sumption put it is fundamentally about the
conduct of others: that Foxtel's three owners, News, PBL and
Telstra agreed on a plan with an illegal purpose.

Gammell's evidence is expected to finish in a week, when the
foreshadowed break will begin.

It is up to Seven to decide whether to take Justice Sackville's
hint and review its claim. If the company chooses to press on, His
Honour will hear the case as pleaded. Then the spotlight switches
to the 50 witnesses scheduled to appear for the defence.

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Kerry Stokes leaves The NSW Supreme Court after the first day of the C7 court case.